How property investors can measure the performance of their portfolio
Smart Property Investment’s Phil Tarrant, an avid investor, has recently settled on a block of properties as his new addition to his growing property portfolio, hoping to add value to his $2.4 million worth of equity built over the last six years.
Phil’s portfolio is currently at $6.15 million total valuation, with a total debt of $3.9 million.
“[That puts our] LVR at 64 per cent... Loan-to-value ratio [means] of the total asset that we own, how much of it is currently under debt? That's 64 per cent,” Phil said.
“It's not at the bottom end of some people's confidence with debt but it's definitely not at the top end [as well].”
For beginners in property investment, the LVR position of Phil’s portfolio may sound like a high percentage, but the avid investor and his financial team are confident about the growth that the portfolio can achieve over time.
According to his accountant Munzurul Khan, there are a variety of factors to consider when gauging the performance of a property portfolio, including asset value, loan-to-value ratio, and cash flow.
“Number one: We look through… the LVR perspective—what's our loan-to-value ratio? What's our overall… asset value? [How has] the value increased over a period of time? We look into the cash flow side of it… then we take a step back and… there is a whole lot of non-quantum sort of mechanism that we look through,” Munzurul explained.
Diversification and time in the market
While it is quite impossible to calculate the exact value of returns that an investor can achieve, several factors can speak for how much potential for success a property investment has.
That’s why, for Munzurul, it is a smart strategy to continuously diversify one’s portfolio by exploring different markets and types of properties.
Holding a diverse portfolio can help an investor spread his risks and ultimately gain passive income because, after all, “time resolves many of the matters naturally by itself,” according to the accountant.
“[We ask ourselves], ‘How is that portfolio, in [a] longer period of time, going to perform? Not only from a diversification point of view but more in terms of the location, more in terms of the future side of the zoning and the future side of capital increases—there's many different ways that we look through,” Munzurul said.
Like many property investors and professionals, Munzurul and Phil advise people looking into creating wealth through property to surround themselves with a reliable team and to take their time in the market.
“If we look through your portfolio… you've done very, very well… You did lots of, lots of, lots of actions. You did buy well. You hold them over a period of time, and you look through [a] longer period of time in terms of the potential of each property, and you stayed within the market,” Munzurul told Phil.
“You should [find] a trusted ally and confidante who can help support you as you get on this path of wealth-creation through properties.”
Tune in to Phil Tarrant and Munzurul Khan’s episode on The Smart Property Investment Show to know how to avoid mistakes by getting the “simple things right,” the best ways to reach your retirement goal, and the many stages of successful property investment.
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